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<p>In many markets, switching costs limit competition by allowing firms to retain “locked-in” customers and charge prices above competitive levels. We study the effects of a major policy intervention that reduced such frictions: the implementation of mobile number portability (MNP) in the U.S. in 2003. Using detailed data on cell phone plans and carriers, we find that average prices fell significantly after MNP, which is consistent with Adam Smith’s insight that removing monopolistic barriers leads to lower prices. Price reductions were asymmetric: Larger firms cut prices more aggressively, and market share shifted from lower- to higher-quality providers. Our findings highlight the dual benefits of switching cost reduction policies: lower prices and improved allocation of consumers to better-quality firms. These results underscore the enduring relevance of Smith’s distinction between natural and monopoly prices and support the view that well-designed interventions can enhance both consumer welfare and market efficiency.</p>

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Reducing Switching Costs to Promote Competition: The Case of Mobile Number Portability

  • 期刊论文

  • 发表日期：

    2026年2月14日

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  • Jiawei Chen,
  • Saad Andalib Syed Shah,
  • Ting Zhu

摘要

In many markets, switching costs limit competition by allowing firms to retain “locked-in” customers and charge prices above competitive levels. We study the effects of a major policy intervention that reduced such frictions: the implementation of mobile number portability (MNP) in the U.S. in 2003. Using detailed data on cell phone plans and carriers, we find that average prices fell significantly after MNP, which is consistent with Adam Smith’s insight that removing monopolistic barriers leads to lower prices. Price reductions were asymmetric: Larger firms cut prices more aggressively, and market share shifted from lower- to higher-quality providers. Our findings highlight the dual benefits of switching cost reduction policies: lower prices and improved allocation of consumers to better-quality firms. These results underscore the enduring relevance of Smith’s distinction between natural and monopoly prices and support the view that well-designed interventions can enhance both consumer welfare and market efficiency.